The year was 2006, the economy was booming and many thought the real estate market still had years more of growth. Promoters like Carlton Cabot and Tony Thompson were pushing a unique investment called a “tenant-in-common” or TIC investment. TICs took advantage of a 2002 IRS revenue ruling that allowed investors to pool their money and invest in large real estate projects. Suddenly middle class investors and professionals could sit at the same table and see the same projects once reserved for institutional investors.
Many of the TIC projects were financed in 2006 and 2007. They were financed in part by loans packaged into Commercial Mortgage Backed Securities (CMBS) trusts. These loans typically were for a 10-year term and mature this year and next. The outlook for refinancing isn’t great.
The TIC industry was marred by many scam promoters. Companies and people like Cabot Investments, DBSI, Tony Thompson and Gemini have all run into trouble. The leaders of DBSI were convicted of fraud and sent to prison. Carlton Cabot is under indictment. The shadow cast by these promoters has made banks very leery of TIC deals. With maturity dates of just months away, that is a real problem.
Although property values have recovered since 2007, in many cases the recovery is not enough to make them finance worthy without a significant principal reduction. That is often a shock to the TIC borrowers since the projects have enough cash flow to pay monthly debt service.
One CMBS expert believes that $30 billion of TIC financed properties are facing loan maturities over the next 21 months.
The worst thing for these TIC projects to do is wait until the last minute. Many of the investors have never met one another and often the management structure is quite weak. (Some TIC groups have very active steering committees; those are typically much better prepared.)
For some TIC groups, the answer may be to sell the project. Because TIC deals were capitalized by tax free exchanges, however, there are important tax implications that differ from member to member. Other groups want to refinance and keep the property. They find, however, that lenders won’t refinance a TIC structure.
Solutions could include a “rollup” into a single entity or a conversion into a Delaware statutory trust. These aren’t necessarily difficult tasks but investors shouldn’t wait until the last minute.
Most of the TIC owners we represent are very educated, bright people. They don’t have experience with real estate financing and getting a group of people who have never met together to decide on a course of action is challenging.
We got our start in the TIC arena several years ago when the TIC scams began to unravel. Today, we have represented well over 100 TIC owners and several large groups. The challenge today is refinancing or unwrapping these deals before there is a maturity default.
Unlike the residential mortgage industry, the special servicers that operate in the CMBS world are sharks. Literally one day after a maturity default, fees, charges and default interest can significantly increase the debt and make refinancing much more difficult or impossible.
If you are a TIC group or individual tenant in common investor and facing imminent loan maturity, call us. We would rather help you convert or sell then to have represent you in a vicious and expensive foreclosure.
For more information, contact attorney Chris Katers at [hidden email] or by telephone at (414) 777-0778. The author of this post, attorney Brian Mahany, can be reached at [hidden email].
MahanyLaw and Judge, Lang & Katers – America’s TIC Fraud Lawyers
Attached is a list of TIC projects. We believed it to be accurate when first published by us in April 2013:
AEI Fund Management Inc
American Capital Group
American Investment Exchange
Argus Realty Investors, LP
Ashforth Paradigm Capital Advisors
Atlas Venture Partners, Inc.
B&H Real Estate Holding, LLC
Behringer Harvard
BGK-Integrated Group
Bluerock Real Estate LLC
Bonaventure Realty Group, LLC
Bucks County Office, LP
Cabot Addison
Cabot Ashtabula
Cabot Broward
Cabot Creekside
Cabot Cypress Creek
Cabot East Town
Cabot Golf
Cabot Investment Properties
Cabot Northpark
Cabot Oak Grove
Cabot Trafalgar
Cabot Turfway
Capital Equities
Capital Real Estate LLC
Clearview Apartments
Cole Companies
College Park
Cottonwood Capital, LLC
Covington Realty Partners
DBSI Group of Companies
Desanto Realty Group
Direct Invest LLC
Dividend Capital
Eliason 1031 Properties Corporation
Equitable Companies, LLC
Evergreen Realty Group
ExchangePoint Properties, LLC
First Guardian Group, LLC
FOR 1031
FORT Properties, Inc.
Franklin 1031 Investments L.L.C.
Gemini Real Estate Advisors, LLC
Grand Peaks 1031 Properties
Granite Investment Group, Inc.
Griffin Capital Corp.
Independent Financial Group
Inland Real Estate
International Realty Advisor
Investment Properties of America
KBS Capital Markets Group, LLC
Kodiak Capital Partners L.L.C.
Meridian Realty Advisors, LP
Moody National Companies
National Exchange Advisors, LL
Noble Royalties, Inc.
ORIX Real Estate Capital, Inc.
Parthenon Realty 1031 Investors, LLC
PASSCO Companies, LLC
Pennbridge Capital
Poplar Avenue, LLC
Principle Equity Management
Rainier Capital Management, LP
Real Estate Partners, Inc.
Real Estate Value Advisors LLC
REEF Oil & Gas Partners
Resource Real Estate, Inc.
RK Properties
Sagebrush Realty Holdings LLC
SCI Real Estate Investments, LLC
Sequoia 1031 Companies LLC
Southfork
SRS Investments, LLC
Tax Strategies Group
Texas Energy Holdings Inc.
The Geneva Organization
The Woodlark Companies
TIC Capital LLC
Tic Properties
TREC Investment Realty
TSG Real Estate LLC
U.S. Advisors, LLC
Wells Real Estate Funds
Western America Equities LLC